SEBI in its board meeting yesterday, has approved sweeping reforms in many sectors.
One such area is alternative listing opportunity to the SME sector. SEBI has created an Institutional Trading Platform (ITP) without the requirement of making an IPO.
SEBI approved the proposal to amend the SEBI (ICDR) Regulations to permit listing of ‘startups’ and ‘SMEs’ in an Institutional Trading platform (ITP) without having to make an IPO. This change has been made with the view to provide exit options to informed institutional investors such as angel investors, VCFs and PE funds etc. Such a move is aimed at providing better visibility, wider investor base and greater fund raising capabilities to such companies.
Companies eligible to be listed on this ‘Institutional Trading Platform’ or ITP shall be
– accessible for investment to the informed investors only with a minimum trading amount of INR 10 lakhs;
– exempted from the requirements of rule 19(2)(b) of SC(R)R 1957 requiring a minimum 25% public float of its shareholding through an offer document in order to get listed.
Pros
SMEs will therefore save huge costs on making an IPO that other companies listing through the traditional offer document route would incur.
Cons
SMEs and other companies permitted to list on IPTs cannot raise capital. Such companies can only make private placements.
What’s in it for the Investor?
Investors get alternate buyers in a regulated network and an alternate market for their shares / investments.
To look forward to
Standardized norms of entry for companies, eligibility criteria, continuous disclosure requirements, simplified exit rules and corporate governance norms will be prescribed. The level of detail in such disclosure requirements will be interesting to note.
Where did all this begin?
This system appears to be derived from the specialist fund markets (SFM) started by London Stock Exchange for knowledgeable investors. The Specialist Fund Market is the London Stock Exchange’s regulated market for highly specialised investment entities that wish to target institutional, professional and highly knowledgeable investors only. The Specialist Fund Market appeals to variety of different types of investment managers, including those managing large hedge funds, private equity funds, and certain emerging market and specialist property funds, seeking admission to a public market in London. However, the concept and the target of this system vis-à-vis that proposed by SEBI are very different.
It appears, SEBI hopes to please two categories through this:
a) the investors who will have an out and a regulated market to play in;
b) companies need not agree to exit clauses with severe consequences in case of no IPO within a stipulated time frame after the investment.
Points to ponder
What is the definition of a start up? Will SEBI also incorporate rules / regulations for an ITP company to get listed in a regular market? Will fast track listing be available to companies already listed on the ITP?
Who are informed investors? Will investors also have to go through a mandated screening process to be able to trade on the ITP?
It would be difficult to anticipate the trading norms, whether there would be a lock-in period for securities purchased through this platform etc.
For all this and more one needs to wait and watch.
The most important question, however is whether such a move would operate to dilute then entire new set up of SME trading platforms? [For an interesting read on the SME Listing scenario, click here.]
COMMERCIAL LAW BLOG 